Industrial policy, competition and antitrust: The Italian experience

1
Industrial policy, competition and antitrust The
Italian experience

• Alberto Heimler

2
Industrial policy in Italy A chronology

• 1933 IRI, the Institute for industrial
  reconstruction, is created (after the 1929-31
  crisis)
• 1936 IRI controls 100 of the 3 major Italian
  commercial banks and 21 of the capital of all
  Italian corporate entities. IRI is strongly
  separated from political power and managers are
  supposed to maximize shareholders values
• 1945 IRI controls 216 companies and has 135000
  employees. Industrial sectors to be developed
  steel, the chemical industry, highway
  construction, car manufacturing,
  telecommunications, air transport.
• 1957 a Ministry in charge of State owned
  companies is created. State owned companies are
  meant to pursue strategic industrialization
  objectives and political objectives which may
  lead to returns below market values (social
  returns higher than private returns). This is the
  start of the soft budget constraint.

3
Industrial policy in Italy A chronology

• 1970 IRI and ENI have over 500000 employees,
  around 15 of total domestic employment.
• 1992 a plan to privatize State owned companies
  is adopted by the Government.
• 1993 the ministry of State owned companies is
  abolished
• Today all banks are private. IRI is a foundation
  and only the military industry is State owned.
  Alitalia is in the process of being privatized.
  ENI and ENEL continue to be controlled by the
  State. Price control is abolished. Industrial
  policy is suspended. How has this happened?

4
The recent liberalization drive in Italy A
chronology

• 1957 Italy is among the funding members of the
  EC. The Treaty is neutral with respect of
  ownership (indifference between private and State
  ownership).
• The European Union is the major force of
  liberalization in the country. The EU is much
  more than a free trade zone.
• 1990 Italy adopts an EC inspired domestic
  competition law. Big business is very much in
  favor because there are no exceptions. The law
  empowers the Authority with very independent
  advocacy powers.

5
The enforcement of the antitrust law in Italy
6
Italian cases on abuse of dominance

• Marinzulich/Tirrernia (maritime transport)
• Ibar/Aeroporti di Roma (airport services)
• 1995De Montis Catering/Aeroporti di Roma
  (airlines catering services) Telesystem/Sip
  (telecommunications) Tekal/Italcementi
  (cement)
• 1996 Compagnia portuale di Brindisi (harbour
  services)
• 1997 Albacom/Telecom Italia Circuiti dedicati
  (telecommunications)
• 1998 Consorzio Risposta/Ente Poste Italiane
  (postal services)
• 2000 Associazione italiana Internet
  provider/Telecom (telecommunications)
• 2001 Assoviaggi- Alitalia (air transport)
• 2002 Diano/Tourist Caronte (ferry boat services)
• 2006 ENI-Transtunisian pipeline (gas)
• 2007 Merck/Principi attivi (pharmaceuticals)

7
Leniency

• 1978 First leniency program for the discovery
  of hard core cartels introduced in the US
  (available only for new cases and wide discretion
  for the Administration)
• 1994 Second US program (immunity is automatic,
  it can be granted also on existing cases,
  immunity is extended to individuals. 20 cases a
  year)
• 1996 First Community program (immunity is not
  automatic and decision is taken at the end of the
  procedure) Hundred of cases, many not concluded
• 2006 second Community program (Conditions for
  immunity are clarified and discretion on the part
  of the Commission is strongly reduced)
• 2007 Italian program very similar to the
  Community program

8
Community experience in cartel repression

• 1998 British sugar 4 50 milions Preinsulated
  pipes 10 92 millions Alloy surcharge 6 27
  millions Steamless steel tubes 8 99 millions
• 2000 Lysine 5
• 2001 carbonless paper 11 313 millions Sappi 0
  Vitamins 8, graphite electrodes 7, sodium
  gluconate 6, Citric acid 5
• 2002 methionine 3 120 millions, Aventis 0 Food
  flavour enhancers 4, 2 Fine art auction houses
  2, Specialty graphite 8 (american origin)
• 2003 Sorbates 5 130 millions Chisso 0 Electrical
  and mechanical carbon and graphite products 6 101
  millions, Cruciale 0 Organic peroxides 6 69
  millions, Akzo 0 Industrial tubes 12 229
  millions, Mueller 0
• 2004 Copper plumbing tubes 5 74 millions,
  PO/Needles 3 30 millions, Entaco 0 Choline
  chloride 3 66 millions
• 2005 Monochloroacetic acid 5 217 millions,
  Clariant 0 Industrial thread 9 44 millions
  Industrial bags 14 291 millions, British
  Polithene 0 Rubber chemicals 4 76 millions,
  Flexsys 0
• 2006 Hydrogen peroxide and perborate 9 388
  millions, Degussa 0 Methacrylates 6 344
  millions, Degussa 0 Bitume 14 267 millions, BP
  0 Copper fittings 12 315 millions, Mueller 0
  Syntetic rubber 6 519 millions, Bayer 0

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Italian experience with cartels

• 1992 Ready made concrete
• 1993 Cement
• 1998 Accountants
• 1999 Chemical products Mobile services Bitumen
• 2000 Certified accountants car insurance
• 2002 Air transport (fuel charge), ticket
  restaurants
• 2003 tests for diabetes cigarettes
• 2005 Baby Milk
• 2006 Industrial gases disinfectants jet fuel
• 2007 Marine coating Chipboard panels

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The recent liberalization drive in Italy A
chronology

• 1992 The antitrust authority starts delivering
  its annual report in Parliament. Press/TV
  coverage on the importance of competition
• 1998 The Minister of Industry, inspired by the
  1993 advocacy report by the Competition
  Authority, liberalizes retail trade (fully
  liberalizing the opening of small shops up to 250
  m2, subjecting to a regional plan the opening of
  medium and large surfaces).
• The law was criticized by incumbent retail
  traders of all dimensions. In the process of
  approval, the Parliament introduces the
  prohibition of sales below costs. The Authority
  argues against it, but is not followed.

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The recent liberalization drive in Italy A
chronology

• 1999 Italy joins the European Monetary Union and
  the exchange rate becomes fixed. Competitive
  devaluations are no longer possible
• 2001 Oecd examines Italy on regulatory reform.
  Concern over high degree of regulatory
  restrictions
• 1990-2007 the Authority issues more than 400
  advocacy reports. Most of them are ignored. They
  are followed when they back a European initiative
  where compliance is mandated or when the powers
  of the Authority are at stake

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The recent liberalization drive in Italy A
chronology

• June 2006 the Minister of industry issues a
  decree with the objective of liberalizing a
  number of activities, improving consumer
  protection, strengthening the enforcement powers
  of the Authority. A lot of categories are
  affected.
• January 2007 the Minister issues a second
  liberalization decree
• The press release of the Ministry contains
  specific reference to the advocacy reports of
  the Authority

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The recent liberalization drive in Italy

• Increased powers to the competition authority
  leniency programs, interim measures, commitment
  decisions
• Professions minimum tariffs abolished
  informative advertisement, interdisciplinary
  partnerships and result pricing (contingency
  fees) allowed.
• Legal monopoly of pharmacies on OTC drugs
  abolished.

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The recent liberalization drive in Italy

• Access to bread making fully liberalized and
  entry no longer subject to the opinion of a
  commission nor to market analysis.
• Commissions by peers responsible for authorizing
  access abolished in a number of activities
• In retail trade and food/drink all sorts of
  limitations to entry/expansion based on minimum
  distances, on market shares, on the portfolio of
  products to be carried abolished.

15
The recent liberalization drive in Italy

• Car insurance Exclusive dealing requirements
  abolished
• Banking depositors have to be informed about
  changes in the conditions of supply and closing
  charges abolished
• Region/municipality owned corporations cannot
  operate freely on the market but only for the
  benefit of the controlling body
• Taxi service requirement that taxi licenses be
  granted only to individuals abolished doubling
  the number of licenses in the country (this was
  only proposed)

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The recent liberalization drive in Italy

• The access to the activity of barbers, hair
  dressers, tourist guides, driving schools is
  liberalized
• Highways should make sure drivers are fully
  informed about gasoline prices
• The prohibition of exclusive dealing is extended
  to all insurance products
• Prices for air services should be publicized
  gross of all costs and taxes
• Mortgages are transferable without costs
• Prepaid purchases of telecommunication services
  should not be priced with a two part tariff and
  should not contain a deadline.

17
The recent liberalization drive in Italy

• Strong reaction by professionals and by banks
  based on general interest considerations (TRUST,
  UNIVERSAL SERVICE STABILITY)
• Strong reaction by taxi drivers protesting for
  income losses (strikes in major cities)
• Taxi service II greater flexibility in shifts
  management and increase in the number of licenses
  to be decided by municipalities
• Decree approved with no other change

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The recent liberalization drive in ItalySome
conclusions

• According to recent polls 70 Italians are in
  favor of liberalization efforts. For all other
  policies consensus seldom reaches 50.
• The feared destructions associated with
  competition do not come about as quickly as
  feared. Also benefits in terms of growth or
  innovation are slow to appear.
• Once competition is on the political agenda, the
  suggestions of the competition Authority become
  an essential facility. The Authority can also
  help in bringing competition in the political
  agenda. International organizations should back
  domestic pro-reform institutions
• Liberalizing pays off politically. It has to be
  all over the board. Protests cancel each other
  out. Same conclusion as Hilmer (1992)

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Antitrust enforcement and the role of the
AuthoritySome conclusions

• Antitrust enforcement has been used to accompany
  the liberalization effort. Business sees
  antitrust as a discipline but also as a tool for
  growth and competitiveness
• Abuse decisions have been particularly important
  in telecommunications, energy, airport services,
  maritime transport, etc.
• The case law of the EC helped a lot (market
  definition, definition of what is an enterprise,
  definition of the relevant market, definition of
  an abuse) by narrowing down the possible
  interpretations of the legal provisions.
• Advocacy was effective in creating a culture of
  competition. The reports of the Authority became
  the essential facility of market orineted
  reforms.
• Governments need a competition contraint
  (constitutional or international).